1)Consider a market with market demand P(Q) = 874Q and each firm in the market faces a total cost TC(Q) = 15Q.

Suppose there is only one firm in the market.

(a) What is the profit-maximizing price and quantity be in the market?

(b) What are the profits and consumer surplus?

Now suppose we have a Cournot duopoly where firms choose quantities.

(c) What is the equilibrium price and market quantity?

(d) What is the consumer surplus and profits for each firm?

(e) What happens to total market profits and consumer surplus as we increase from one to two firms?

2. Consider a market with demand P(Q) = 852Q in which two firms compete. Firm 1 faces T C1(Q) = 25Q and firm 2 faces T C2(Q) = 13Q.

(a) Find the reaction function for firm 1.

(b) Find the reaction function for firm 2.

(c) Find the Cournot equilibrium (Q 1 , Q 2 , P ).

(d) Determine profits for each firm and consumer surplus.